Boom

They say you can see a bubble in the economy by looking at the skyline. I was in Los Angeles in the 1980s when a tsunami of Japanese money poured over the city. Back then Library Tower (now US Bank Tower) was under construction. It topped out in 1989 just in time for the market crash and resulting recession which put the kibosh on such new construction for most of the 1990s. That was the beginning of the end of Japan’s heyday.

The Burj Khalifa in Dubai topped out at one hundred and sixty three floors in 2008 precisely in time for the global financial crisis. It was one big giant barometer announcing an overheated market rife with irrational exuberance. It’s worth remembering that the Empire State Building in New York began construction in a fevered competition to be the world’s tallest building just as the Great Depression hit. It remained mostly empty for several years, and didn’t turn a profit until 1950 – twenty years after it was built.

At a paltry sixty one habitable stories the new Salesforce Tower in San Francisco would barely be visible in a line up of global mega towers. But for a medium sized city like this it stands out. I’m told by engineers that sixty stories is the cut off for an “economical” skyscraper. After that every additional floor becomes increasingly expensive relative to the amount of space that must be devoted to structural elements, elevator shafts, and mechanical systems. So Salesforce Tower is hitting the sweet spot for egotistic grandeur and sensible construction techniques. It’s a big fish in a small pond.

In order to build structures like this you not only need serious cash and an army of engineers, architects, skilled specialized construction labor, and imported custom materials of every kind, but you also have to invest in the political process. It takes ten years on average for the city to issue a typical permit for a plain vanilla building. Think of the army of bureaucrats and professional middlemen that are required to guide a project of this scale through the entitlement process.

Looking around, the entire city is one big construction site. Money is pouring in from everywhere and concentrating here. I happen to like all these new buildings simply because they’re cool and fun to be in. But the same conditions that allow this kind of activity to flourish are also highly correlated to an equally extravagant correction. As I’m fond of saying, if you want a generous supply of affordable real estate… build loads of luxury properties – and wait. One man’s failed investment eventually becomes another man’s discount opportunity.

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Johnny

I'm an amateur architecture buff with a passionate interest in where and how we all live and occupy the landscape, from small rural towns to skyscrapers and everything in between. I travel often, conduct interviews with people of interest, and gather photos and video of places worth talking about. The good, the bad, and the ugly - it's all fascinating to me.
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The interesting thing is SF is a constrained boom, compared to the truly hot cities in the US. In 2014, when Salesforce was just starting to be built, SF was #6 in the US with 4.9million sq feet under construction. It’s sister city San Jose was ahead at #3 with 7.3 million sq feet. #2 NYC nearly doubled up SF with 8million under construction. But the big winner Houston combined SF, San Jose, and New York with 19 million sq feet of office space (not counting residential or dedicated retail) under construction.

Of course Houston ‘busted’ with oil price crashes, and now it’s back with SF again, with only 3 million sq feet of office towers under construction in 2017. The future is going to be shiny and tall. Maybe wealthy people will turn office towers into single family homes in the future.

The thing about office construction as a barometer is that 9 years after the crash office vacancies are *still* at deep depression levels. There’s a secular shift going on in the economy and we just don’t need as much office space as we used to. I guess it’s a good thing the construction industry has caught on.

Office towers can be converted to residential space, and are. Conversion of excess office and residential space could fill requirements for new housing in the US for many years although not necessarily in the right places. It does help reduce the separation of residential space from where people want to go, since conversions are obviously in places that allow commercial space.

My Buddy just moved to Houston and got a great deal on a sweet apartment downtown. His first months rent was only $100 bucks, probably likely due to some rule in the financing somewhere that says you can’t charge less than a certain amount per month to keep out the “Undesirables”

While Houston continues to grow, it is obvious to me that the oil bust might hurting the energy city more than some people think.

I’m a big fan of all the new stuff. Not the skyscrapers per se (although its nice to catch up with 80s Hong Kong) but the mundane & large residential developments – Mission Bay, Hunter’s Point, Candlestick, Park Merced, etc. Demand, meet supply. Well, maybe by the time my kids are grown. Or 2018. Who knows. Anyways, anytime a parking lot becomes a walkable 2-5 story neighborhood (my Goldilocks density standard) I’m in.

When the Transamerica Building, the previous tallest in SF, was built, it was the 8th tallest in the entire world. Now it would be the 17th tallest just in New York City, and probably not even in the top 200 worldwide. How fast things change.

It’s certainly interesting how building booms often precede economic busts, although not always. SF has had relatively low construction for a while, though, so I doubt a bust is imminent. Like you say, at least the leftovers will be good to look at, whatever happens.